Dodd: Becoming an SEF – cost or opportunity?

A remarkable number of global financial institutions are actively pursuing setting up Swap Execution Facilities (SEFs) since they have become enshrined in U.S. law under the Dodd-Frank act. Recent announcements have delayed when they formally need to be ready, but few institutions care. Why?

Because SEF creation is the natural
extension of better customer service. The better price
discovery and deeper markets offered for OTC derivatives traded
on SEFs will enrich what firms offer to their customers.
This will drive business and profitability.

The OTC derivatives
landscape has seen much change with the evolution of
technology. Electronification has improved transparency and
efficiency on many trading venues, enabling better executions
on tighter spreads for all investors. Regulation is only
pushing the natural evolution of business practice. Whatever
the asset class, electronification has an impact on price
discovery, liquidity consolidation and rapid execution.
Technically, it is as easy to access a multi-participant
interbank swaps market electronically as it is to access a
multi-participant equity derivative market on an exchange.

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